A report on financial incentives to further the cause of Energy Efficiency by the United Nations Programs for Energy Efficiency notes that by 2030 the green house emissions by Asian countries are going to grow by an estimated 50 plus percent. Considering that about 23% of the energy being consumed by the industrial sector (amounting to 45% of the total energy consumption) in these countries is lost due to various inefficiencies, the local governments of these countries should promote energy efficiency in their countries as the first step to resolve the energy crisis and also in the process do its bit to reduce the overall GH emissions from their respective countries. I personally think that the EU has had been very proactive in creating financial support mechanisms and the right laws that make it possible for industries to finance such projects and reaps its long terms benefits. They have also introduced this unique concept of ESCO (Energy Services Companies ) , that are innovative institutions that engage into arrangements where they own and operate energy efficiency projects for industries and taking a share of the benefits reaped. Such arrangements make sure that there are definite long term rewards for the industries, while making the whole thing economically viable for the ESCO's to get into. India awaits its white paper on energy efficiency to be releases by the government this month. We have seen extensive delays in it being published, but hopefully this time we are going to see it coming out towards the end of this month. To compliment the publishing of the report, we should see some increased vigor by the Government of India to take a strong stand on this issue and push laws and support mechanism to take a step towards energy independence and a greener tomorrow.
The host of financial initiatives that can be taken by the government can be summerized under the following heads tax policy ,subsides, lending programs and ESCOs.
Tax Policy and Subsidies
With the tax policies the aim should be to increase the cost of fuel consumption thus making the industries think hard about bringing in efficiencies in the production, transmission and consumption of energy. Again its important to realize that a blanket application of such policies will not work in all regions. We need to address each region on a case by case basis by clearly understanding the economics and the factors at play in a given region. Another thing could be to provide tax incentives for investments be made in the area of energy efficiencies, adding to the benefits that can be reaped by making huge investments required for these projects.
Lending Programs
The sole objective of such programs is to make funds easily available for companies to persue the energy efficiency projects. Invariably it has been found that the cost of raising money for such projects is beset with the risk for these investments not providing significant long term benefits to repay the loans, making it difficult for companies to commit to such projects. We need to have divisions at the banks trained to handle cases for such investments. The banks need to upgrade themselves with knowledge on how to value such projects and attach the right levels of risk based on an objective evaluation of the project to figure out the right terms for providing the loans. In the current modes of lending, any such investments would be perceived as high risk thereby attracting very high lending rates at the hand of bank officials. The Government need to help setup agencies that can evaluate projects on a very objective basis and help in the lending process. These kind of setups will go a long way in help individual businesses identify the future gains and plan for the investments accordingly.
ESCO's
We need to promote such specialized organizations that have the knowledge and access to the right set of tools and information required for the successful implementation, monitoring and maintenance of complex energy efficiency projects. Under the performance contracts that are handled by these organizations, the businesses choose to share a pie of the benefits that are released by the energy efficiency projects while the ESCO's take complete ownership of financing, executing , monitoring and maintaining these projects ( not to mention that risk exposure that is brought in with these kind of investments). In a certain way these ESCO's function as a fund that guarantees return on investments and assume the responsibilities in case of default.
For the Asian region to be able to achieve its goals , the local governments need to implements a mix of strategies and put the right laws in place for monitoring energy consumptions and constantly rewarding those who undertake energy efficiency projects and rebuking those who fail to do so ..
To be continued ...
The host of financial initiatives that can be taken by the government can be summerized under the following heads tax policy ,subsides, lending programs and ESCOs.
Tax Policy and Subsidies
With the tax policies the aim should be to increase the cost of fuel consumption thus making the industries think hard about bringing in efficiencies in the production, transmission and consumption of energy. Again its important to realize that a blanket application of such policies will not work in all regions. We need to address each region on a case by case basis by clearly understanding the economics and the factors at play in a given region. Another thing could be to provide tax incentives for investments be made in the area of energy efficiencies, adding to the benefits that can be reaped by making huge investments required for these projects.
Lending Programs
The sole objective of such programs is to make funds easily available for companies to persue the energy efficiency projects. Invariably it has been found that the cost of raising money for such projects is beset with the risk for these investments not providing significant long term benefits to repay the loans, making it difficult for companies to commit to such projects. We need to have divisions at the banks trained to handle cases for such investments. The banks need to upgrade themselves with knowledge on how to value such projects and attach the right levels of risk based on an objective evaluation of the project to figure out the right terms for providing the loans. In the current modes of lending, any such investments would be perceived as high risk thereby attracting very high lending rates at the hand of bank officials. The Government need to help setup agencies that can evaluate projects on a very objective basis and help in the lending process. These kind of setups will go a long way in help individual businesses identify the future gains and plan for the investments accordingly.
ESCO's
We need to promote such specialized organizations that have the knowledge and access to the right set of tools and information required for the successful implementation, monitoring and maintenance of complex energy efficiency projects. Under the performance contracts that are handled by these organizations, the businesses choose to share a pie of the benefits that are released by the energy efficiency projects while the ESCO's take complete ownership of financing, executing , monitoring and maintaining these projects ( not to mention that risk exposure that is brought in with these kind of investments). In a certain way these ESCO's function as a fund that guarantees return on investments and assume the responsibilities in case of default.
For the Asian region to be able to achieve its goals , the local governments need to implements a mix of strategies and put the right laws in place for monitoring energy consumptions and constantly rewarding those who undertake energy efficiency projects and rebuking those who fail to do so ..
To be continued ...
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